The wrong wording could cost you the right house.

Your pre-approval letter is the first step in obtaining a mortgage and buying your new home, so it is important to understand what it means. Does your qualification or pre-approval letter have a payment amount, refer to an address, or property taxes? If not, and your letter instead states a sales price or loan amount, as so many do, it isn't accurate.

Mortgage applicants are not approved for a loan amount or a sales price, they are qualified for a housing payment. This payment is based on a percentage of your income that can be used for your housing expense. Because there is more to a housing payment than just principle and interest, those things need to be considered as well when determining a mortgage amount for which you will be approved.

If you are holding a generic letter with just a sales price or mortgage amount how will you, your agent, or the seller know it will work for different homes with different costs?

 

Example:

Often a buyer will come in thinking they want to buy an $80,000 condo because the payment is low. What they are not thinking about is the association fee. If that condo has a $300 association fee, at today's rates they could buy a single family home for $135,000 and still have the same payment.

I once had a couple come in about to sign contracts on a $369,000 property. When I asked why they weren't excited they said they were having trouble forgetting about a more expensive property that they fell in love with. When they showed me the listing online, I noticed the taxes. Even though the properties were only a few miles apart, the taxes were so much lower in that township that they left our office and bought the $439,000 property for nearly an identical payment.

In either example, had the letter they received assumed the higher costs, they would not have even known they could look at the higher priced property with lower fees. And had the letters assumed the lower fees, they may have gone to contract on a home they couldn't afford.

Since it is the housing payment that determines qualification it is important to know what you maximum housing payment is. That way you can make adjustments for each homes different expenses.

At Almost Home we write the letter based on the property address on which you are making an offer. That way you, your agent and the seller can be confident the proper expenses for that specific property were used. It may be a little extra work on our part, but we think it is that important.